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The Regal Cycle Company manufactures three types of bicyclesa dirt bike, a mountain bike, and a racing bike. Data on sales and expenses for the past quarter follow:

	Total			Dirt Bikes			Mountain Bikes			Racing Bikes
Sales	$	919,000		$	262,000		$	405,000		$	252,000
Variable manufacturing and selling expenses		464,000			117,000			190,000			157,000
Contribution margin		455,000			145,000			215,000			95,000
Fixed expenses:
Advertising, traceable		69,700			8,500			40,700			20,500
Depreciation of special equipment		43,700			21,000			7,100			15,600
Salaries of product-line managers		114,900			40,900			38,900			35,100
Allocated common fixed expenses*		183,800			52,400			81,000			50,400
Total fixed expenses		412,100			122,800			167,700			121,600
Net operating income (loss)	$	42,900		$	22,200		$	47,300		$	(26,600)

*Allocated on the basis of sales dollars.

Management is concerned about the continued losses shown by the racing bikes and wants a recommendation as to whether or not the line should be discontinued. The special equipment used to produce racing bikes has no resale value and does not wear out.

Required:

1. What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes?

2. Should the production and sale of racing bikes be discontinued?

3. Prepare a properly formatted segmented income statement that would be more useful to management in assessing the long-run profitability of the various product lines.

The Regal Cycle Company manufactures three types of bicycles-a dirt bike, a mountain bike, and a racing bike. Data on sales and expenses for the past quarter follow: Dirt Hountain Racing Bikes Total Bikes Bikes Sales Variable manufacturing and selling 919,000 $262,000 $ 405,000 S 252,000 464,000 117,000 190,000 157,000 455,000145,215,0005,0 expenses Contribution margin Fixed expenses: Advertising, traceable 8,500 43,700 21,000 114,900 40,900 183,800 52,400 69,700 40,700 7,100 38,900 81,000 20,500 15, 600 35,100 50,400 Depreciation of special Salaries of product-line managers equipment Allocated common fixed expenses* Total fixed expenses Net operating income (loss) 412,100 122,800 167 $ 42,900 22,200 $ 47,300 (26,600) Allocated on the basis of sales dollars. Management is concerned about the continued losses shown by the racing bikes and wants a recommendation as to whether or not the line should be discontinued. The special equipment used to produce racing bikes has no resale value and does not wear out. Required: 1. What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes? 2. Should the production and sale of racing bikes be discontinued? 3. Prepare a properly formatted segmented income statement that would be more useful to management in assessing the long-run profitablity of the various product lines

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